Market Meditations | April 23, 2021
Blood on the streets today and many questions being asked.
Blood on the streets today and many questions being asked:
What’s happening with Bitcoin?
What does it mean for Ethereum?
Can we find solace in altcoins such as Solana?
Let’s answer them one by one. Bringing in our good friends technical and fundamental analysis.
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What’s happening with Bitcoin, what does it mean for Ethereum and can we find solace in altcoins such as Solana?
Bitcoin is in a tricky spot after some ugly price action.
$60,000 – Key Psychological level
$51,309 / $50,411 – Key Structural Level
$45,000 – Key Support / Structural Level
Deviations above $60,000 will have trapped late longers, it will be difficult to break this level in the short term.
We’ve lost several key structural levels on the road down to $48,000. The market structure has undoubtedly shifted. For context, this is the first time the price has reached the 100 Day MA in 2021.
Assuming $50,000 holds, a period of sideways price action is probably ranging up to and testing $60,000.
FUNDAMENTALS. Early doors Friday, we saw Bitcoin prices below $50,000. On the fundamentals, the reasons for the dip are contested with fingers being pointed. According to The Block, the price drop follows news in the U.S. hours that President Joe Biden was said to propose increasing tax for the wealthy on capital-gains by as much as 10%.
Further, data from Bybt.com shows nearly $500 million worth of bitcoin long positions have been liquidated over the past one hour due to the price slump. Accompanied by $1.6 billion in crypto futures positions.
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Despite Bitcoin’s shift, ETH is holding quite nicely.
$2000 – Key Psychological / Structural / Support Level
After bitcoin finds a steady floor, Ethereum having shown strength is primed to extend to $3000.
This is invalidated below $2000.
FUNDAMENTALS. Ether had achieved a record $2,644 intraday on Thursday. That compares with Bitcoin, which has been on a downward trend since April 14. Yesterday’s highs can likely be attributed to a coming upgrade that is expected to reduce the supply of Ether, which could help boost the price. Known as EIP 1559, the change solves a current problem:
Ethereum users can only estimate how much Ether will be needed for transactions to be processed, a guessing game that has spawned sites such as ETH Gas Station to help people know how much to pay. EIP 1559, which will become part of an upgrade in July or August, will embed an average price into the network itself making the guessing game obsolete.
$36 – Key Structural Level
$30 – Key Support
Solana has shown great strength, it’s a higher risk play relative to ethereum with an upside target of $48.
This idea is invalidated at $30.
FUNDAMENTALS. Solana has proven to be relatively resilient against market dips. Solana is a fast, secure, scalable crypto blockchain that supports smart contracts and decentralized applications. Unlike Ethereum, it has always embraced the proof-of-stake and proof-of-history consensus. This makes it relatively faster and substantially cheaper than Ethereum’s network. Which is not to say that one exceeds at the expense of the other. As @adamscochran detailed in a recent twitter thread, the possible outcomes are not quite so binary.
IN SUMMARY. Different technologies excel at different things. Decentralisation is a spectrum, blockchains actually have a web of trade-offs they can choose to make on multiple spectrums. Where Ethereum focuses on maximising decentralization, trustlessness and accessibility of the state machine, Solana aims at making slight trade-offs in these, and how state is stored, in order to optimize for raw processing power.
Don’t Get Dragged Down by Anchoring Bias
Jerry first heard about Bitcoin back in 2016 when the price was $500, however, he decided not to buy any. By 2017, he had convinced himself it was a strong asset however the price had risen to $2,000 so Jerry thought “Bitcoin was $500, this is far too expensive, I’ll just wait”.
Today the price of Bitcoin is $50,000 and Jerry has missed out on 2,400% returns. He fell victim to one of most proven cognitive biases: anchoring. This is where the first piece of information we receive acts as an anchor. We filter all new information against this benchmark even when it is not appropriate to do so.
So what can you do to make sure you avoid Jerry’s mistake?
Always test your assumptions
New information is constantly streaming in and has the potential to invalidate our assumptions. Keep up to date with the market and use new information to test old assumptions.
Never rely on a single piece of information
No matter how reliable we think the source, information can often be inaccurate. Diversify the sources which you use to obtain new data and use multiple pieces of information to form your hypothesis.
Do not place any reliance on your entry price
Instead, consider the chart as at the current date and think “would I enter the position at the current price?” If the answer is no, you should accept your losses and move onto the next trade.
Always consider how much significance the market will place on information
Markets do not care what price you sell at, what price you buy at and how much money you have previously made on an asset. Ensure you do not rely on any information that is more important to you than it is to the market.
Anchoring bias can be a huge problem for our finances but also in our lives, preventing us from disregarding initial conclusions, no matter how inaccurate they may be. Do not be like Jerry and do not fall victim to anchoring bias.
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